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Pure Storage (PSTG) Down 9.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Pure Storage (PSTG). Shares have lost about 9.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Pure Storage due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Pure Storage Inc. reported non-GAAP earnings of 25 cents per share in first-quarter fiscal 2023, which beat the Zacks Consensus Estimate of 4 cents. In the prior-year quarter, the company reported break-even earnings.

Total revenues increased 50% from the year-ago quarter to $620.4 million. Moreover, the top line surpassed the Zacks Consensus Estimate by 18.7%.

The upside can be attributed to subscription services’ growth, as well as revenue growth in both domestic and international segments.

Quarter in Detail

Product revenues (contributing 64.7% to total revenues) amounted to $401.2 million, up 60.5% on a year-over-year basis.

Subscription services revenues (35.3%) of $219.2 million rose 34.6% on a year-over-year basis. The upside can be attributed to ongoing support contracts and the robust adoption of Evergreen subscription services and Pure as-a-Service subscriptions.

Subscription Annual Recurring Revenues (ARR) amounted to $900 million, up 29% on a year-over-year basis. Subscription ARR includes the annualized value of all active subscription contracts as of the last day of the quarter plus annualized on-demand revenues.

Total revenues in the United States moved up 57% and the same for International increased 33% year over year.

Pure Storage has also been gaining from its growing clout of FlashArray, FlashArray//C, and FlashBlade, a cost-effective storage array solution. This provides customers with higher performance capabilities and enables them to run complex cloud workloads on a single platform.

In the quarter under review, Pure storage announced partnership with Snowflake, Kyndryl, and Amazon Web Service to further expand its technology portfolio.Pure Fusion and Portworx data provide automated data delivery service as well as strengthen cloud-native applications, favored the company’s performance.

Pure Storage added 360 customers in the reported quarter. The company’s customer base includes 54% of the Fortune 500 companies.

Margin Highlights

The non-GAAP gross margin expanded 10 basis points (bps) from the year-ago quarter to 70.6%.

The non-GAAP Product gross margin contracted 20 bps from the year-ago quarter to 70%. Product gross margin was affected by increasing supply-chain costs in the quarter under review. The non-GAAP Subscription gross margin was 71.5%, which expanded 40 bps on a year-over-year basis.

Non-GAAP operating expenses, as a percentage of total revenues, were 56.8% compared with 70.4% reported in the prior-year quarter.

Pure Storage reported a non-GAAP operating profit of $85.4 million in the first quarter of fiscal 2023 compared with the non-GAAP income of $0.3 million reported in the year-ago quarter. The non-GAAP operating margin stood at 13.8% compared with 0.1% reported in the prior-year quarter.

Balance Sheet & Cash Flow

Pure Storage exited the quarter ended May 8, 2022, with cash and cash equivalents and marketable securities of $1.3 billion compared with $1.41 billion as of Feb 6, 2022. As of May 8, 2022, long-term debt stood at $572.6 million compared with $786.8 million as of Feb 6, 2022.

Cash flow from operations amounted to $220.1 million compared with $21.4 million in the prior-year quarter. Free cash flow was $187.3 million compared with ($6.4) million in the previous-year quarter.

In the fiscal first quarter, the company returned $66 million to shareholders through the repurchase of 2.1 million shares. The company has approximately $184 million remaining under the $250-MILLION share repurchase plan.Deferred revenues increased 28% to $1.1 billion in the quarter under review.

The remaining performance obligations at the end of the fiscal first quarter totaled $1.43 billion, up 26% year over year. The metric represents total committed non-cancellable future revenues.

Guidance

Pure Storage expects revenues of $635 million for second-quarter fiscal 2023, indicating growth of 28% from the year-ago reported figure.

The non-GAAP operating income for the fiscal second quarter is expected to be $75 million. The non-GAAP operating margin is expected to be 11.8%.
For fiscal 2023, Pure Storage expects revenues of $2.66 billion, indicating year-over-year growth of 22%.

The non-GAAP operating income is expected to be $320 million and the non-GAAP operating margin is expected to be 12%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 54.62% due to these changes.

VGM Scores

At this time, Pure Storage has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Pure Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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